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Tuesday, February 28, 2017

LBS BINA - Clear Sight

The Group’s FY16 net profit of RM85.6m (+20.8% YoY) came in ahead of expectations, at 112% of our and 110% of consensus full-year estimates. This is despite the Group knocking off some RM27m from impairing its investments in Zhuhai Holdings and RM5.3m in goodwill impairments, but which were partly mitigated by disposal and foreign exchange gains and a grant received which bumped up “other income” almost 4-fold. Business-wise however, conditions are healthy. With the group currently undertaking 15 on-going projects against the backdrop of a record-high unbilled sales amount of RM1.41bn, the company remains primed for sustained growth in the coming few financial years, particularly owing to its predominant focus on affordably-priced properties which stand it in better stead. Our Outperform call is affirmed with an unchanged target price of RM2.23 (30% discount to FD RNAV).

Though not reaching the heights set in Q3 (RM462m sales), business was still steady in Q4 with RM272m sold. Bandar Saujana Putra continues to drive the Group’s earnings growth, with RM592m sold during the year. Other major contributors are the D’Island and Desiran Bayu projects in Puchong (RM206m and RM268m respectively) while Cameron Golden Hills, Bandar Putera Indah, Sinar Mahkota and Midhills contributed a collective RM172m. New sales for the year totaled RM1.24bn, exceeding the RM1.2bn target. Despite the prevailing market environment, LBS’ ability to sell reflects the Group’s continued focus on the customer segment it does and knows best, the mid- and mass-market segment which continues to see steady demand and financing availability. To note, Q1 and Q2 sales were RM266m and RM238m respectively.

2017 plans. Management has indicated launches to the tune of RM2.35bn next year, with a sales target of RM1.5bn, 25% higher than 2016’s RM1.2bn. Sales will still be underpinned by its flagship Bandar Saujana Putra which will see some RM678m (29%) worth of properties launched. Other major contributors are its Alam Perdana project (RM420m, 18%), CyberSouth Project in Dengkil (RM278m, 12%), the Langit and Lake project in Bandar Putra Perdana (RM372m, 16%), Centrum @ Cameron Highlands (RM184m, 8%) and Bukit Jalil (RM170m, 7%).

Quick turnarounds. While the Group continues to benefit from the fact that most of its current developable land bank was acquired years ago in which costs were much lower thereby giving it the flexibility to alter its product mix to address whatever market cycle, its ability to reap rewards fairly quickly from recently-acquired plots of land (in 2016) through planned launches (and likely sellable properties given its mid-market focus) in Alam Perdana and CyberSouth in Dengkil bears testament to management’s foresight in value creation. Current unbilled sales of RM1.41bn, coupled with its planned launches this year will underpin earnings visibility for the next 2-3 years.